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Red flags to be aware of when renewing energy contracts

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Accepting a renewal offer from your existing energy supplier may seem like a simple way to facilitate a new contract, but it can also prove to be an extremely costly exercise, says Michael Hughes, co-founder and MD at business energy agency Out-Of-Contract Utilities.

“With an enormous selection of twenty-plus energy providers competing fiercely against each other, it’s extremely unlikely that your existing supplier will be offering the most cost-effective option when renewing your gas and electricity supply contracts,” says Michael.

Even in the current climate, Michael estimates a business could save upwards of 20% simply by comparing renewal offers from at least five of the current best-performing providers, specific to our industry.

Unfortunately, many fail to compare the market and, instead, lock in hugely inflated prices with their existing supplier, something which Michael says they later regret.

There are two red flags that Michael warns shops to be aware of when renewing an energy contract with their existing supplier; the first is the timeframe.

He explains: “Your existing supplier will typically send you their renewal letter just six to eight weeks prior to your current contract expiring with them. This forces you into an extremely reactive position and leaves you at the mercy of the market, as the timing of their paperwork will often coincide with huge spikes in energy prices.”

However, many businesses might not know that future energy supply contracts can be arranged up to 12 months in advance, with the start date being set as the day after any current deal ends.

“This enables you to be extremely proactive and allows you to lock in contracts when prices in the market are lower, rather than waiting on generic renewal offers from your existing supplier, which are likely to come at the wrong time,” he adds.

The second red flag to be aware of is risk premiums applied by certain suppliers which could mean your business is discriminated against with higher charges simply for operating in the food sector.

“These extra fees, which are typically added to unit rates, act as an insurance policy for the provider while significantly inflating your prices,” says Michael.

“If your existing supplier has included a risk premium into their renewal offer, you should avoid agreeing to a new supply contract with them and look elsewhere!”

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